DoubleLine CEO expects imminent US recession, government debt surge

(Changes “Treasuries” to “Treasury” in last paragraph)

By Davide Barbuscia

NEW YORK (Reuters) – Jeffrey Gundlach, the chief executive of investment management company DoubleLine Capital, expects a U.S. recession as soon as this year, he said on Thursday, as higher interest rates pressure U.S. consumers and companies.

Signals of brewing trouble in the U.S. economy such as rising credit card delinquencies and softer retail sales data suggest the possibility of an economic contraction is more imminent than the risk of an inflationary rebound, he said.

“There’s a lot of recessionary signals out there,” he said, speaking at a webinar hosted by David Rosenberg, founder and president of Rosenberg Research. “There’s more of a recessionary feel than an inflationary feel,” he added.

The money manager, often dubbed ‘the bond king’, said he was staying away from the riskiest parts of the corporate debt market such as triple-C rated companies’ bonds as well as private credit investments because he expects companies’ debt defaults to surge.

Specifically, regarding private credit, he said investors looking for higher returns in private markets than in public debt markets run the risk of remaining stuck with illiquid assets in case of a sharp economic slowdown.

“There is no factor on which private credit looks better than public credit at the present moment. It’s riskier, it doesn’t have the same reward, it’s the absolute worst,” he said.

On the other hand, DoubleLine is heavily exposed to U.S. government debt, he said, despite concerns over rising U.S. debt levels and soaring government interest debt payments caused by higher rates. “We have more Treasuries now in our strategies than we’ve ever had,” said Gundlach.

Over time, a growing debt burden could however lead to the need to restructure U.S. government debt, which would be unprecedented.

“I’ve got this crazy idea that I want buy only the lowest coupon Treasuries … because if I have a very low coupon Treasury I don’t have to worry about being restructured,” he said. “I worry that the federal government might be forced to restructure the Treasury debt.”

(Reporting by Davide Barbuscia; additional reporting by Carolina Mandl; editing by Jonathan Oatis and Josie Kao)